MICROS' CEO Discusses F2Q12 Results - Earnings Call Transcript

Jan.26.12 | About: MICROS Systems, (MCRS)

MICROS Systems, Inc. (NASDAQ:MCRS)

F2Q12 Earnings Call

January 26, 2012, 4:45 p.m. ET

Executives

Tom Giannopoulous – Chairman, CEO

Cynthia A. Russo – EVP, CFO

Tom Patz

Peter J. Rodgers, Jr. – EVP, IR

Analysts

Mayank Tandon – Needham & Co.

Dan Perlin – RBC Capital Markets

Terry Tillman – Raymond James

Ross Macmillan – Jefferies & Co.

Vincent Colicchio - Noble Financial

Jonathan Gin – Wedbush Securities

Keith (Husam) – Northeast

Bhavan Suri – William Blair & Co.

(Frank Colombo) – [Inaudible]

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the fiscal year 2012 second quarter conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded, Thursday, January 26, 2012. I would now like to turn the conference over to Mr. Tom Giannopoulos, CEO of [inaudible]. Please go ahead sir.

Tom Giannopoulos

Thank you, George, and good afternoon, everyone. Thank you for being with us this afternoon. As a reminder, this is the conference call to review the financial results for our quarter two, the December quarter of our fiscal year 2012, which is – which started in July 1st. Here with me are as always are Cindy Russo, our CFO; Tom Patz; and Peter Rogers, and we’ll commence with Peter and the disclaimer.

Peter Rogers

Thank you, Tom. Good afternoon, ladies and gentlemen. Some of the comments today are forward-looking statements involve risks and uncertainties such as the uncertain for product demand and market acceptance, the impact of competitive products and pricing on margins, the ability to obtain on acceptable terms the rights to incorporate in MICROS's products and services, technology patented by others, environmental and health-related events, unanticipated tax liabilities and the effects of terrorist activity and armed conflict.

MICROS Systems undertakes no duty to update any forward-looking statements to conform to actual results or changes in MICROS' expectations. Other risks and uncertainties associated with MICROS' business are identified in the management's discussion, analysis of financial condition results of operations and business and investment risk sections of MICROS' SEC filings. Tom?

Tom Giannopoulous

Okay, thanks, Peter. Looking at the financial results for the quarter from our press release this afternoon. For the quarter we had a record revenue at $270 million, 403, versus last year is $247 million, 117. The 270 is the second highest quarter in our history.

Year-to-date, the first six months revenue came in at $526 million versus last year’s $480 million, 531 which is a 9.7% increase from year-to-year. Gross margin for the quarter and six months was $152 for the quarter and $296 million, 737 for the six months, 56.32 for the quarter, a ratio of gross margin, and 56.31% for the first six months.

Of course, the ratio 56.33 is suburb for our business model, which is hardware, software, and service. It should really – I’ve said this before, the gross margin for our business should be 50 to 51%, how we’ll continue to do better, better than that. And obviously above 55% for the first six months.

Again, on a non-GAAP basis, that excludes the stock option in November. Total operating expenses of $92 million for the quarter, and $180 million for year-to-date versus $83 million last year in the quarter, and $160 million for year-to-date. The ratios last year was 33.4, this year was 34.3. It’s higher than we like it. It just tells you that we have room to improve from a operating expenses point-of-view.

Still on a non-GAAP basis, year-to-date net income was 81 million, 396 versus last year’s 70 million, 311, $0.99 EPS and $0.85 EPS last year, an increase of about 16% year-to-year.

And I’ll ask Cindy now to give you the rest of the numbers.

Cindy Russo

Thanks, Tom. The highlights of the balance sheet for the quarter are as follows. MICROS had $785 million of cash and investments at December 31, an increase of $64.7 million over the same quarter last year, and a decrease compared to Q4. In addition to an adverse impact of foreign exchange amounting to $46.6 million, the six month cash movement also includes the repurchase of $48.4 million in common stock.

During the second quarter, we purchased a total of 500,000 shares at an average price of $46.05 per share. Thus far in fiscal 2012, the company has purchased 1.1 million shares, leaving us an additional 1.8 million available to purchase.

From a cash flow perspective, year-to-date we have generated $63.5 million from operating activities, while spending $4.4 million on the net purchase of investment. During the six-month period, the company capitalized $3.9 million in internally developed software cost, and extended $8.3 million on property plant and equipment, primarily related to the expansion of our global data centers and physical offices.

The company’s cash spilt by segment remains the same at U.S. 41%, international 59%.

Day sales outstanding at quarter end were 59.6 days, down 2.5 days from our last release. Domestic DSOs of 50.7 days were driven slightly higher by the timing of our Q2 revenues. December 2011 was our second highest billing month in our company’s history. International DSOs were 66.8 days, in line with last year’s Q2 record, 66.7.

The inventory balance of $37.3 million is a decrease of $3.2 million over the September period. Again, primarily attributable to the timing of international shipment.

Inventory turns in the period were 9, a company Q2 record compared to 8.6 a year ago. The combined current and long-term differed revenue balance of a $141.2 million has increased $15.3 million since our Q2, 2011. This 12.1% increase does not yet include the calendar year 2012 maintenance price increases we mentioned on the last call.

A few additional items related to the income statement are as follows. On the revenue side, the segment split for the quarter was domestic 43%, international 57%, bringing the year-to-date split to domestic 44%, international 56%. Foreign exchange this quarter had a nominal impact on revenues and EPS at 200,000 positive impact on sales and zero impact on earnings per share.

Maintenance and hosting related revenues for the quarter grew 9.8% from the prior year to a $107.2 million or 39.6% of total revenues. The SaaS and hosting portion of our current revenues grew 36.1% over the parallel quarter.

Non-operating income for the quarter was $1.4 million. This figure includes $1.9 million in interest income offset by $0.1 million in interest expense. The currency loss this quarter amounted to $0.6 million and the company recognized $200,000 in other income.

As far as tax modeling is concerned, we recommend that you continue to model a 31 to 32% full-year tax rate as stated previously. Tom?

Tom Giannopoulos

Thanks, thank you Cindy. In summary, we had a very nice Q2. We’re very pleased with our performance for the first six months of the fiscal year, almost double-digit revenue growth, gross margin about 56%, operating income ratio of about 22%, which is spectacular. Net income increase of above 14% year-to-year, and of course double-digit EPS growth as well.

All these with business conditions, in reality, are getting worse since last June. As we all – as all of us know, GDP growth rates around the world have been reduced, whether it’s the U.S., Germany, China, India, and so forth.

The Euro Zone debt issues remain unresolved, et cetera, et cetera, et cetera. We’ll continue to invest and introduce new products and services, which will drive our revenue growth the next five years, especially since the pent up demand of our customers increases.

As Cindy mentioned, we have accelerated a stock buyback program. We still continue to look at the opportunistic and common sense acquisitions. Hopefully business conditions will improve soon so that we can concentrate on our $2 billion goal that’s what we have by 2015, 2016.

Thank you for your time and George will take questions now.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from Mayank Tandom with Needham. Please go ahead.

Mayank Tandon – Needham & Co.

Thank you. Good evening, Tom. We haven’t heard about guidance. I think you gave guidance last quarter for the full year and we did not hear about that. Maybe if you could just help us out with how you’re thinking about the full year?

Tom Giannopoulous

We – since we didn’t change the guidance, we didn’t put the sentence in the press release. So the guidance remains the same annually, which is that revenue 1111 and EPS of 209.

Mayank Tandon – Needham & Co.

Okay. Good to know. And Tom, could you also talk, just given some of the macro uncertainty you discussed, could you talk about, you know, what are you seeing in terms of the trend across your three vertical; retail, restaurants and hotels, you know, any macro changes over the past three, six months?

Tom Giannopoulous

It’s incremental changes, I think what’s happening is that the business conditions that political events around the world are basically keeping our customers from buying product that would they would be buying today. So they’re delaying purchases from what we can see. We still have a lot of the negotiations going on and you know, hopefully they’ll – you know, business will improve and we can turn those negotiations into contracts.

Mayank Tandon – Needham & Co.

So just to be clear, is that a change from say last quarter or have you already baked some of these factors into your guidance? You’re not changing guidance, I’m just trying to get a sense if it this is a change for you or have you already embedded this into your expectations for this fiscal year?

Tom Giannopoulous

It’s not a change in guidance, obviously. And we had hoped to see some contracts or some discussions, let’s say, become contracts. We don’t see that. That doesn’t mean it’s not going to happen, but you know, at this time, we’re just taking a conservative approach and you know, not increasing our numbers.

Mayank Tandon – Needham & Co.

Got it. And one more question from me. You mentioned some of the new products that could drive growth longer term. Maybe if you could just talk a little bit about, you know, when Opera 9 might hit the market for the hotels, and also when Symphony might be available for the broader restaurant chain market.

Tom Giannoploulous

Well, first, let’s start with the last one. Symphony is available today and it’s used by a number of our customers and so forth. The – what’s keeping, you know, exactly what’s keeping our customers from purchasing Symphony, it’s not the macro [inaudible] finality on the product, but basically they’re trying to survive with the existing product that they have. Maybe another two or three months until conditions – until – not conditions but the problems that we have around the world are somewhat resolved.

On the Opera 9, we have the same situation there. Even if the product was 100% available today it would be doubtful from my point of view that anybody would be purchasing heavy purchases of the product. The product is well received by our customers, by our advisory panels that we have with our customers and both on Symphony and Opera 9, we’re on the right track from having the right product for our customers in the future.

Mayank Tandon – Needham & Co.

Okay, and if I can just get one last one in. So can you remind us what maintenance price increase was?

Cynthia Russo

Maintenance price increase primarily will go in effect January time frame. And I’d say it varies based on country, but on average, it’s probably 2 to 3%.

Mayank Tandon – Needham & Co.

Okay.

Cynthia Russo

Modest.

Mayank Tandon – Needham & Co.

Thank you.

Operator

Our next question comes from Dan Perlin from RBC. Please go ahead.

Dan Perlin – RBC Capital Markets

Thanks. Tom, can you just talk a little bit about the progress that either of you are making at some of your larger accounts within the hotel vertical?

Tom Giannopoulous

This is exactly the case I was talking about. In better business conditions those opportunities would have converted into contracts and that hasn’t happened. We have, you know, additional meetings and so forth. We’re working a lot of defining the gaps between their product and our products and only because, you know, business conditions are not where everybody would like the to be. And most importantly, the political issues have not really been resolved.

Dan Perlin – RBC Capital Markets

Okay, so is this kind of a [inaudible] chain when you’re talking about political issues not being resolved that we might have to deal with through an election cycle, in which case, now we push this off much further into the future, or are these opportunities still within the grasp of say your fiscal ’12 year?

Tom Giannopoulous

You know, I’m not a politician and I’m not an economist, but what we see is there is a slight delay. You know, we should – with the products that we have and the organization that we have in place, we should see a substantial upside to our numbers. That’s not the case. The upside we had hoped to see, we don’t see and we’re not going to see until, you know, until our customers feel comfortable that they can expand here and expand there because the events have been resolved.

Dan Perlin – RBC Capital Markets

Okay. That sounds more of a broader context than maybe talking to just a few very large opportunities that maybe you’ve spoken to in the past. Now, hardware in the quarter was really strong and I would wonder, would you characterize as what we saw really happening in the first quarter as well, so a lot of workstation sales, international was really the area that drove the growth and then U.S. still kind of was sluggish, was that – is that what we should be taking away from this current quarter as well?

Tom Giannopoulous

That’s correct. It’s exactly correct.

Dan Perlin – RBC Capital Markets

Okay. And Cindy, do you have, what if any was acquired revenue [inaudible] in the quarter or was the 9% FX adjusted the organic gross in the quarter?

Cynthia Russo

I'm sorry, from an acquisition standpoint, we don’t give out any numbers related to any of our minor acquisitions for the prior year.

Dan Perlin – RBC Capital Markets

Okay, so let me ask you a different way. What was your organic growth in the quarter, currency?

Cynthia Russo

Our organic growth, I mean, it’s the percentage.

Tom Giannopoulous

It’s the 9.75 that we had.

Cynthia Russo

Correct.

Dan Perlin – RBC Capital Markets

Okay, so that’s – we saw a bit of an acceleration for your topline then sequentially. And I’m just wondering, it looked like last quarter FX adjusted you did like 7 plus percent this quarter so [inaudible] Symphony. Remember these accounts make made a several thousand spike so it’s a major upgrade decision not only for their corporate stores, but franchisees. In this particular market, the franchise business is improving so we see the strength in this. And surprisingly, there’s increased demand in Europe, but the major account channel restaurants globally is still quite hesitant just for making large purchase decisions.

Tom Giannopoulous

Dan, I think one of the things all of us needs to do is go to the [inaudible] conference that they have in Switzerland this week and see some of the comments that will come from the presidency of the major hotel chains, major of this, major of that about the business and what they think about the business. You know, you’ll see one customer, potential customer of ours, existing customer of ours saying that this is the best occupancy rates that they have seen since 2008, both from a REVPAR and a percentage of occupancy. The last three or four months have been the best, one senior executive said. And another senior executive of another company said that they’re still struggling, both getting to the occupancy rates and to the revenue per available room of 2008 and before.

Dan Perlin – RBC Capital Markets

Very good. Thank you guys. I appreciate it.

Operator

Our next question comes from Terry Tillman from Raymond James. Please go ahead.

Terry Tillman – Raymond James

Good afternoon. Thanks for taking my questions. The first question just relates to the hardware revenue again and I think, Peter, you had talked about the three businesses that we saw picking up solidly. Either I was out of whack with my model assumptions or it still looked like it was a pretty strong beat on the hardware side, so is this street business big enough and in what you see there sustainable to at least maybe have at least a somewhat higher growth rate in hardware going forward? That’s the first question.

Peter Rodgers

Yes, Terry. I think that we’re plainly seeing sustained pickup at the independent level. And when I look at the restaurant business globally, about 70% of the restaurant is what I call an independent street restaurant business. So yes, the U.S. trends are very positive and we can see that sustainable. Clearly, if ou look at the back half of the year, then again, there’s always the effect of Euro space on the strong currency headwind to report in dollars.

But from a street restaurant business in North America, it’s a much improved situation and we’re seeing that pickup in hardware and software, but the major [inaudible] channel, they’re 30% globally. The chains are just resistant. They don’t want to make acquisitions because they’ve got a local franchisee, so as Tom said, those things do have to calibrate a number somewhat. You know, if we had better situations, clearly major accounts would start converting.

Terry Tillman – Raymond James

Well, as it relates to the software overall, you know, whether it’s the national account or the major account restaurants and/or on the hotel side, was there any notable impact in the quarter from some of the delays or is that more of a forward-looking indicator on why, you know, you’re settings somewhat reserves into your outlook commentary?

Peter Rodgers

Terry, that’s forward-looking in terms of the comments.

Terry Tillman – Raymond James

Okay.

Peter Rodgers

It was a good quarter, but our concern is just looking forward, it’s – the thing is, going back three months, you know we started coming out of the August duldrums, but the debt situation in Europe just has power over everything. Not so much in terms of a particular restaurant or particular U.S. city, but just overall for any major account making large deals. They’re going to hesitate a bit.

Terry Tillman – Raymond James

Yep, understood. And I guess as just a broader question, high-level question for Tom, or Peter, or anyone here, you know, given the consolidation we saw in [inaudible] going away a while ago, the dust has probably settled, whether it’s that competitive dynamic or just the overall competitive landscape, any notable changes because it does seem like that was a pretty dramatic kind of change in the broader competitive landscape, so seeing any changes, any benefits, anything that you could comment on the landscape there? Thanks?

Tom Giannopoulous

Yes, we haven’t seen any notable changes because there’s not yet activity that we do expect to have in regards to proposals and negotiations and so forth. We’re competing with all those guys before, separately, and you know, now we’re competing alone against one versus two before. George?

Operator

Our next question comes from Ross Macmillan with Jefferies & Co. Please go ahead.

Ross Macmillan – Jefferies & Co.

Thanks. Tom, so given your comments on the environment, are you making any changes to your investment plans or hiring plans, or are you going to continue alone the path that you thought you would continue on, you know, 90 days ago?

Tom Giannopoulous

We’re not making any changes, no. From a product perspective and development perspective, we’ll continue to higher and increase in headcount from one year to another is partly because of that initiative that we have. So we’re not going to change that strategy that we have. We keep adding sales people, especially in North America. We keep adding, you know, as needed, account managers and so forth overseas and here. So there’s no drastic change from – I just – my commentary basically is to say to everybody that regardless of what we read, okay, you know, from a business perspective, business conditions have not really substantially improved.

Ross Macmillan – Jefferies & Co.

Okay. M&A, I was just curious, obviously conditions aren’t improving and that sometimes could lead to opportunity in M&A for smaller players that may struggle more than larger players. Do you think the potential of you doing some M&A is increasing here?

Tom Giannopoulous

It’s interesting enough that evaluations have increased substantially. I don’t understand that based on the fact that they might not be doing as well. But you know, you have these players that have cash and they have patience and they want to wait and so forth. That’s not going to change substantially. I would continue, as in the press release, or as I said in my comments, you know, we’re looking at opportunistic acquisitions. We’re not going to do anything stupid and overpay and so forth and then we’ll, you know, we’ll continue to do what we’ve done before and that is find a nice manageable acquisition that have the right price and also that have the right technology and the right management and they can fill a gap that we may have in our product portfolio.

Ross Macmillan – Jefferies & Co.

Okay. And last one for me. Cindy, you gave the growth rate on the SaaS revenue. Do you have the actual dollar amount?

Cynthia Russo

Yes. For the quarter, the dollar amount is $18.1 million.

Ross Macmillan – Jefferies & Co.

Thank you. Thanks.

Operator

Our next question comes from Vincent Colicchio with Noble Financial. Please go ahead.

Vincent Colicchio - Noble Financial

Yes, Tom, you had a nice improvement in slope or margin. Could you give us some help in terms of what assumption would be reasonable for the year?

Tom Giannopoulous

Peter?

Peter Rodgers

Vince, I mean, it was a very good quarter, 87.6. I think coming back, I would – most of the remaining quarters probably at the 82, 83 level. We just had a very good quarter. Then again, internal software is representing around 93, 94%. But remember that number is somewhat volital, so I would define 82% for the latter two quarters.

Vincent Colicchio - Noble Financial

All right, thanks, Peter. And this one, Tom, is for you. Can you give some color in terms of the situation in Europe. Did you grow in Europe this quarter? Will you grow going forward? Perhaps some color on if there’s a credit crunch over there having an effect? That would be helpful.

Tom Giannopoulous

Well, it’s interesting enough in all our distribution channels and that is Europe, Africa, Middle East, Asia-Pacific, which is another distribution unit in South America and North America, the big players in other words, all of them grew very nicely from a year ago. You know, we also have some, as you know, additional business units, smaller players that we acquired or – and the – the results there were hodge-podge basically. Some of them grew nicely and some of them didn’t grow. And so from a, you know, I’m encouraged that the large entities, [Inaudible], North America, South America and then Asia Pacific, all of them grew very close to the internal budget, which is essentially higher than what we call the Wall Street budget.

We can look at that and say, you know, it’s very nice and very good and that we have the resources in the products and the right brand name and reputation to continue to grow espeicaly with large customers when the business returns.

Vincent Colicchio - Noble Financial

All right, thanks, Tom.

Operator

Our next question comes from Gil Luria with Wedbush Securities. Please go ahead.

Jonathan Gin – Wedbush Securities

Yeah, this is actually Jonathan Gin in for Gil. Just one question. Would you mind giving us some more details about the mobile point-of-sale product announced at Varney’s and this kind of an answer to the iPad basically, skins that we’re seeing at some other retailers and what advantages does your product offer?

Tom Giannopoulous

You know, we – obviously, we have to be mindful of breadth of our business and so we have formed a group on the restaurant side the deals with mobile devices, ecommerce requirements and so forth so we too can, you know, we offer the capability to use the mobile devices, iPod, iPads and whatever. It’s not going to – the iPad is not going to replace the point-of-sale workstation for many reasons, but it will, you know, it will – really, to me, it’s a new opportunity to sell new software and new – new software basically, to your customers, which is what we are strategically doing. We have like for example, an hotel manager product used in the devices, the mobile devices so that, you know a potential customer can get in the car or the taxi from the airport and change reservations or whatever using the mobile devices that are connected directly then to our product management system. That is additional revenue to us.

We have a number, like I said before, it was a number of pilot programs going on in restaurants and hotels and also retail.

Peter Rodgers

Jonathan, I want to add, pending retail and hotel business, our business primarily is software installation services and maintenance. We’ve generally been harbor agnostic [inaudible] with hardware platforms. All these new mobile devices actually create new additional billable licenses because those devices have to be licensed for the application.

So as Tom said, it actually expands the range of our solution and we’re doing the same thing in the restaurant side. Most of our business is really restaurant, but the mobility actually extends the range of the platform. There could be some cannibalization, but overall, we’re actually adding to our software license, installation and maintenance revenue. It’s very positive for our business. So we’ve actually been a very open platform. We actually introduced handheld ordering 20 years ago.

Jonathan Gin – Wedbush Securities

Okay. That sounds really good. Thanks a lot.

Operator

Our next question comes from Keith (Husam) with Northeast. Please proceed.

Keith (Husam) – Northeast

Tom and Peter, as I look at the growth quarter – I’m sorry, year over year, can you guys give a little bit of color in the three industries leading the growth. Was it restaurants that we growing fasting the hotels and retail?

Peter Rodgers

No, it’s hotels basically.

Keith (Husam) – Northeast

[Inaudible]?

Tom Giannopoulous

Retail from obviously a smaller base, the rate is higher and it includes some small acquisitions that we made three or four years ago. When you start with – I think overall it’s hotels, restaurants and then retail and that’s the way we want it really because the hotel products are all software and as a result, the gross margins are higher.

Keith (Husam) – Northeast

Right. So when you’re talking hotels, restaurants you’re talking in like absolute dollars, correct?

Peter Rodgers

Percentages Keith. We don’t really break out the segments quarter because remember, the certain product that cross platforms so it’s hard to be precise.

Keith (Husam) – Northeast

Okay. All right, thank you.

Operator

Our next question comes from Bhavan Suri from William Blair and Company. Please go ahead.

Bhavan Suri – William Blair & Co.

Hey, guys. Thanks for taking my question. Just as you look at the hardware business and the spike in hardware sales, can you provide any color if any of those customers, you know, considered or looked at Symphony as a SaaS solution because wouldn’t – and tell me if I’m thinking about this correctly. Wouldn’t Symphony provide a lower cost option for them?

Tom Giannopoulous

Well, it’s a good question, but I could say, look, I think what they did is they looked – they purchase today and move over to Symphony today and with the additional, let’s say budget demands or do we wait and upgrade the hardware to the latest and greatest and then introduce the software maybe six months later or a year later. That’s the – the decision is, you know, the SaaS models and then cloud services and so forth, as we all have discussed before, there’s positives and there’s negatives to those particular solutions because if I sell a POS system to a 20-unit operator and I sell it today, I own a license method. Okay, then I would get a lot up front revenue. But if I do it over a SaaS period, then it becomes a buy versus a leasing situation. So then you have a customer [inaudible] for live.

So there’s advantages and disadvantages. I think the most important thing for my mind is, and I’ve discussed this with customers and so forth is that yes, we would go with Symphony today, but we’ll wait for another year. You know, our hardware is fine, but can you sell…

Peter Rodgers

That’s true. [Inaudible] what Tom said, people can SaaS to Symphony for six months to a year and [inaudible] a lot more the conditions for their immediate needs, but keep the software and just upgrade my hardware because it’s [inaudible] compatible by design.

Bhavan Suri – William Blair & Co.

Sure, sure. That’s helpful. And then I guess when you look at the software line and the SaaS growth, can you give us some sense, and maybe this is for Cindy, of what the software that would have gone to Symphony [inaudible]?

Cynthia Russo

SaaS revenue is recognized, is more evenly recognized over the life of the contract.

Bhavan Suri – William Blair & Co.

Sure, so what I’m saying is if I took the SaaS, say [inaudible] was sold, how much of that would have been in the software line potentially?

Cynthia Russo

In the SaaS, we can’t do the percentage. According to accounting standards, SaaS revenue is always in the service line. So we don’t do any of those calculations.

Bhavan Suri – William Blair & Co.

Okay. And then one last one from me. Tom, you mentioned investment in sales. You’ve also made some investments in Europe [inaudible] sales targeting some of the more independent hotels. Just some sense of how that’s going in the environment there.

Tom Giannopoulous

All I can look at is what the numbers were a year ago for those sales and what the number are now. There is improvement. However, there – it’s not to the level that we would like it to be.

Bhavan Suri – William Blair & Co.

Okay. Thanks so much.

Operator

Our next question comes from (Frank Colombo) with [Inaudible]. Go ahead.

(Frank Colombo) – [Inaudible]

Hello, guys. Thank you for taking my questions. Could you give an update on the progress of the [inaudible] acquisition for the business segment?

Tom Giannopoulous

We have a list of names and we talk to them every day. It’s just a question of evaluation. There is, you know, do I ask somebody [inaudible], the answer is no. I might talk and I will talk to a number of them, the answer is yes. Are we talking back and forth? We’ll see where that is.

(Frank Colombo) – [Inaudible]

Great. Now, with [inaudible] security provide [inaudible] for your SaaS offers or…

Tom Giannopoulous

It would provide, you know, it would provide security to our customer. It would provide – I mean, the idea here is to be able to provide product and services for our customers to secure the data of – because more and more data is stored away now and I mean, that was the strategy – that is the strategy behind expanding into a fourth vertical.

(Frank Colombo) – [Inaudible]

Okay. Thank you.

Operator

(Operator instructions). Our next question comes from Brian Murphy with [Inaudible]. Please go ahead.

Brian Murphy

Hi. Thanks for taking my question. I just have a quick follow up on the SaaS business. It continues to grow in the kind of mid-to-high 30% range. Tom, could you just remind us again, and I don’t think you’ve touched on this yet, but what segment in particular is driving that growth?

Cynthia Russo

The fact is it goes across all the business lines; it’s in Symphony products, the Opera product, the retail products. We provide all of those in the SaaS and hosting solutions.

Brian Murphy

Right, I understand, but over the past couple of quarters, could you just give us a sense where – in which segment that’s been, you know, has it been growing materially faster than another?

Tom Giannopoulous

Hotels.

Brian Murphy

Okay. Just a follow up on the growth of the business segments, historically I thought the hardware line was a pretty good proxy for the restaurant business. And you know, with that up sharply in the December quarter, I’m a little bit confused as to why hotels is growing faster here. Does that imply that, you know, you maybe resold a lot of third-party hardware on the hotel side? Is that what’s going on?

Tom Giannopoulous

We don’t sell any third-party hardware to hotels. Hotels buy those directly so there’s no revenue there that comes from the – from that side. I didn’t get the rest of your question.

Brian Murphy

I as just wondering, you know, if hardware is a good proxy for the restaurant segment? Hardware was up 24%, why is the restaurant segment not your fastest growing business segment this quarter? I’m just confused.

Tom Giannopoulous

Only because they’re, you know, more conservative and – period.

Brian Murphy

Okay. Thank you.

Operator

There are no further questions at this time.

Tom Giannopoulous

Okay, thank you, George, and thank you, everyone and we’ll talk to you again in April. Have a nice evening and I cheer for the Celtics.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. You may disconnect your line.

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